Renting a house for vacation isn't a new thing. Renting someone's in-law suite instead of a hotel room, is.
We live on a resort island, and since the 1970's, people have been renting out beach houses to tourists on a weekly basis or longer. And we are not unique in this aspect - many vacation areas have local real estate agents who handle such rentals, and vacation homeowners would use such rental income to offset the cost of owning the home. Decades ago, before AirBnB or VRBO existed, we rented such a house in Duck, North Carolina (the Outer Banks) in the off season, fairly cheaply, through a local real estate agent. Pretty much every house you see on the outer banks is for rent - or was, at one time or another.
And when we had our condos in Florida, we rented them out seasonally (three or four months at a time) to Canadian "Snowbirds" through the relatively new VRBO (Vacation Rental By Owner) service. This was in the era of CRT televisions and whatnot - the dark ages. And it worked out pretty well for long-term rentals. The advantage of a local real estate agent is that they can hand the keys over to the tenant and arrange for cleaning after the tenant leaves. They can also handle minor problems as they arise - a clogged toilet or a broken light fixture. The "online" rental companies really don't offer that kind of service.
VRBO and AirBnB are basically the same idea, although I guess VRBO, as the name implies, is more geared toward weekly vacation rentals, while AirBnB started out as more of a nightly rental company. But something changed over time as well - AirBnB turned more into an ersatz hotel, and people started buying houses in non-vacation areas to rent them out full-time as hotel rooms - often pissing off the neighbors in the process.
When we moved to Jekyll, the neighbors cautiously asked us if we intended to rent our place out when we weren't here. When we told them "No" they said "Thank God!" as they didn't want to live next door to a stream of strangers coming and going every week, having loud parties into the night and parking cars and boat trailers all over the lawn.
And it is a thing. Not so much on our "quiet" side of the island, but on the beach side, during the summer (when it is ungodly hot) local Georgians will rent a house for a week and invite every extended relative in a three-State area to join them. They may be five or more cars parked on the lawn, along with utility trailers (for the golf carts and massive barbecue smokers) as well as the inevitable bass boat or jet skis. Those houses get ridden hard and when they do come up for sale, they often need a complete overhaul. But you can make a lot of money renting out a place by the week, as opposed to the month or the year - about five times as much, in fact.
If you buy a beach house in a vacation area, well you know what to expect. Chances are, you'll be renting your house out as well, to help pay the staggering mortgage. We know quite a few folks who had houses on the beach side, and when they retired and decided to live there "full time" they sold the beach house and bought a house on the "quiet side" of the island, after only one year of living with the Yee-Haw neighbors.
So the problems with vacation rentals are well-known - but people know what they are getting into when they buy a beach house on the Outer Banks. They can't act shocked when the weekly neighbors throw a luau every Saturday night. AirBnB however, has expanded this concept to ordinary neighborhoods. Why pay top dollar for a hotel room, when you can rent a condo for a night or two for less?
Some Condos (and homeowner associations) and local zoning laws forbid this. Our condo in Virginia does not allow renting for less than a year. We would be fined to death if we rented out our condo as an AirBnB. But we'd make hella money at it, though! So you see why people do it.
Over time, a number of trends have accelerated to make the whole thing more and more untenable. People are buying houses on "AirBnB loans" which factor in nightly rental income to pay the mortgage. These nightly rentals are invading more and more quiet neighborhoods, often in violation of zoning laws, and causing havoc for the neighbors.
In some instances, people are renting out houses not as a place to stay, but as a place to hold a rave or a party - inviting dozens or even hundreds of people, charging admission, serving drinks (and drugs) and providing a DJ and other entertainment. The neighbors are not amused but the owner doesn't care because they charge sky-high fees. The renter makes money as well, until the Police shut them down.
We rented a boat (a hoary old SeaRay 42) at a marina in Jacksonville through AirBnB or VRBO when we went to see a show there at the local theater. It was an interesting idea, but the "harbormaster" admonished us not to have wild parties. Apparently a previous tenant had thrown a bash onboard and other liveaboards complained about the noise. It was an interesting experience, but the next time we went to see a show, we booked a room at the hotel across the street. It was more relaxing, they had a free breakfast and secured parking, and we could walk to the theater across the street. Oh, it was cheaper, too.
Many AirBnbs have tacked on outrageous cleaning fees - in the hundreds of dollars, even if hiring a cleaning company costs maybe $100 or so. For a weekly rental where you "trashed the place" maybe that makes sense - maybe not. In addition to cleaning fees, many owners require that the renter do the dishes, take out the trash, or even mow the lawn! Since the owner is not "boots on the ground" and has no local real estate agent to manage the place (that's too costly!) they rely on the tenants to manage the place for them - and often the next tenant arrives to find that the cleaning tasks assigned to the previous tenant were not done. Hilarity ensues.
For a nightly stay, a hotel often beats an AirBnB in terms of cost, particularly when onerous "cleaning fees" are tacked on. It may also beat an AirBnB in other areas as well - such as safety, predictability, amenities, location, parking and whatnot.
What is interesting is that AirBnB and VRBO are taking what was an existing business (vacation rentals, hotel rooms) and then putting it online on an "app" and then charging onerous fees. In other words, it is like the rest of these "tech-that-is-not-tech" companies that take mercantile endeavors (taxi service, delivering food, hotel rooms, vacation rentals, car rentals) and turn it into an "app" that basically exploits everyone involved and funnels off a huge percentage of the money to Silicon Valley, while breaking a host of local laws and regulations (taxi medallions, zoning, minimum wage, etc.). Everyone becomes a "contractor" and works for pennies, while the CEOs of these companies make billions in stock options.
During the recession - and then the pandemic - many of these companies thrived. After the debacle of 2008, young people were told to get a "side hustle" driving for Uber and then basically sold their cars to Uber, one ride at a time (often buying their car financed through Uber, thus "owing the company store" and being little more than wage slaves). It is only today that Gen Z is seeing through this ruse - why should they have to "side hustle" at several low-wage gigs when our recent ancestors made a living - if not an extravagant one - just working one full-time job?
The pandemic was a boon for delivery services and, oddly enough, AirBnB. With many vacation venues shut down and hotels seeming like virus pits, the idea of renting a house for a family vacation seemed appealing. And sales of vacation homes soared - and continue to soar, although I think we are in bubble territory these days. Houses that sold for $400,000 a few years back are under contract for over a million dollars - with cash buyers, sight unseen, buying remotely! Well, that is what is happening on our island. We couldn't afford to live here if we had to move here today. Mark's brother thought about buying a house here, and not a few years ago, could have snagged a "fixer upper" for $300,000 or so. That ship has sailed. I kick myself for not snagging a duplex (both sides!) for $200,000. Today, each side commands close to a half-million dollars. Nice work if you can get it.
This is the conundrum for our Condo sale this year. They are tearing it down and paying us $160,000 cash (no real estate agent fees, few closing costs) but what can you buy anymore for $160,000? Not much these days, and many of the properties in that price range would be nightmare rentals as they are in bad neighborhoods and attract insolvent tenants. We may just end up biting the bullet and paying the capital gains tax. With the loss of Obamacare subsidy (for one year) it would cost us $50,000 overall.
First World Problems, I know.
I think things may change, however, in 2023. If the worldwide recession takes hold in America, we could go from labor shortage to labor surplus in a real hurry. Good news for Uber and Doordash, as they would have a larger pool of desperate people to draw from. But on the flip side, people laid off from work (or worried about it) will tighten their belts and be less likely to order out for food or take an Uber to the bar. And many folks may cut back on vacation expenses as well.
Already, we are seeing a decline in AirBnB bookings in some areas. This may be due to a number of a factors, including over-saturation of the market (too many people buying houses and turning them into AirBnBs), as well as the increase in ridiculous fees and "chores", but also, I think, due to a slowing economy. When the shit hits the fan, vacations and other luxuries are the first thing on the chopping block.
Of course, the founders of AirBnB made their money during the IPO. In recent months, despite record earnings and profits, the stock has halved in value, bringing the P/E ratio back down from the stratosphere. Once again, a declining P/E ratio - is that a good thing? Or do people smarter than us see something we don't? Like perhaps, recession.
Personally, I kind of gave up on AirBnB, Truro, Lyft and Uber, as well as VRBO, as I found the process to be maddeningly complex, the pricing opaque, and the service sometimes less than expected. When traveling to a distant city, you might select from a handful of hotels near your destination and book with one you know to be a known quantity. AirBnB, on the other hand, presents a bewildering array of properties and you have to scroll through all of them, read the reviews (and read between the lines) and watch out for those hidden fees. And as for food delivery, well, I haven't had that in well over a decade - it just isn't a worthwhile proposition. For the life of me, I don't understand paying substantial sums of money to have fast-food delivered. Maybe there are wealthier people out there who just don't care - or maybe there are a lot of fools. I suspect the latter.
There seems to be a drumbeat online of hate for AirBnB in particular (someone is shorting the stock?) with people posting horror stories about wild raves going on at AirBnB properties, or messes they as tenants have to clean up, or "hidden" cleaning fees in the hundreds of dollars (sometimes over $1000!). There is not a lot of love for the company. At the same time, I am seeing saturation advertising for both AirBnB and VRBO, showing pictures of idyllic vacation homes with friends and family gathered 'round the hearth for a sing-along. It smacks of desperation.
Over the years, we have seen tech recessions occur again and again. In the late 1990's, it was hardware companies that bit the dust, as computer components became a commodity and profit margins became razor-thin. Then there was the dot-com bust - websites that were never profitable finally went bust. After that, we've seen many social media companies come and go - with only a few having any staying power. Today it is the tech-that-is-not-tech sector (I think) that is next on the chopping block. There just isn't enough bandwidth to support a half-dozen electric scooter rentals or city bikes. You can't have five or six food delivery services and offer "free delivery for a month" and make money (and they aren't, either!). Even companies like Uber which seem ubiquitous, are losing money. Eventually you have to at least break even to stay in business. You can't borrow your way to success for long.
Some of these services may turn out to be a thing, but just not "The Next Big Thing!" - they will consolidate and the newness will rub off and life will go back to normal. And we'll wonder why we thought these companies were so groundbreaking, when all they were doing was putting minimum wage jobs on an app - and then stealing the lion's share of the money from everyone involved.
And I think that is why you see the share prices of many of these companies in free-fall. It is the same pattern over and over again, and the people who really understand the market (not the idiots who fall for the hype) see the writing on the wall. There are no big bucks in delivering pizzas, unless you are Dominos. There are no huge margins in making cars - as Tesla may realize shortly. All this talk about "disruption" and whatnot is just the same old Silicon Valley happytalk that we've heard before.
2023 may end up being a bumpy ride.
